Last year was a tumultuous one for the U.S. municipal bond market, with individual investors fleeing in droves, according to new data released by the Federal Reserve.
The household sector held $1.62 trillion in municipal bonds in the fourth quarter of 2013, down from $1.647 trillion in the previous quarter and the lowest since $1.58 trillion in the first quarter of 2006.
Individuals, however, are still the biggest investors in the municipal bond market, which totals $3.671 trillion, the lowest since it ended 2008 at $3.52 trillion.
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That's partly because mutual funds also walked away from municipal bonds, dropping $39.3 billion worth of bonds in the fourth quarter of 2013. Closed-end funds shed $100 million and exchange-traded funds (ETFs) $300 million, according to the seasonally adjusted data.
Mutual funds that held Puerto Rico debt because of its special tax treatment also fled those bonds because of economic turmoil in the territory.
Data from early 2014 suggests the trend could continue. Sales of new bonds hit a 14-year-low in February, according to Thomsen Reuters. Although money began flowing back into municipal bond funds, Lipper data shows February marked the smallest monthly net inflow since July 2011 at $422 million.
On the other hand, U.S. banks held $416.4 billion in bonds at the end of 2013, the largest amount on record since 1951.
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